Features-as-a-Service: Paywalls are Not Just for Content

Manufacturers of connected equipment, devices, and products have an incredible opportunity to develop new recurring revenue models by offering features on a subscription basis, so-called Features-as-a-Service offerings. The capability can be used in consumer and industrial products allowing OEMs to develop data-driven add-on services to bring in additional monthly revenues. 

And there is great flexibility in that the features can be “activated” before or after a sale or delivery of the unit to the customer. Additionally, there are multiple ways to offer Features-as-a-Service, expanding the ways recurring revenue might be generated.

Develop and deploy one model but selectively unlock features

When capabilities are based on hardware, a manufacturer must make numerous models to meet broad market expectations. However, with modern equipment, many features are now enabled via software. And as such, this gives OEMs a new way to develop and release equipment. 

Any feature of a piece of connected equipment that is controlled by software can be made selectively available. It might be the speed or some other capability at which a piece of equipment operates.  

A manufacturer only needs to build and sell one model. They can then offer different versions with richer feature sets for higher sale prices. If a customer chose a higher-end set of features, they would pay a higher price. That model then replaces the approach where, say, an industrial device is built and sold in two, three, four, or more versions, each with different features and configurations.

As a result, OEMs can basically build once and sell many versions by turning on features via software at the time of purchase. An example would be an auto manufacturer selling a modest-priced car that handles well on regular roads. But for a fee, it could make that car a sports version by enabling certain steering and braking control software systems.

See also: Out of the Frying Pan and into the Connected Kitchen

Premium features via a subscription model

Another approach that is being taken with Features-as-a-Service is to offer premium features that are software enabled on a subscription basis. An example would be industrial printers or medical scanners with different resolution modes. The unit might be sold offering one level of printing quality or scanning resolution. The customer could then be offered the higher-level capabilities for a monthly fee. In essence, the OEM is offering quality-as-a-service.

The automotive industry is leading the field in this market. Increasingly, higher-end features such as remote engine start, heated seats, self-driving capabilities, and more are being offered as add-ons for a monthly fee.

Such a model for industrial and consumer products provides ways for OEMs to sell a single piece of equipment or device and develop recurring revenues from existing customers via software switches that turn on those features.

Bundled software that complements a connected product

The examples above make use of software and software-enable features that are included with a manufacturer’s unit. But an additional way to offer Features-as-a-Service is to partner with a third-party software vendor to enhance the capabilities of the original product or device.

An example would be an MRI or CT scan manufacturer offering AI-based image analysis as an extra. The medical equipment could be sold outright or delivered as an Equipment-as-a-Service offering. In either case, the enhanced image analysis could be offered for an added monthly fee. That approach gives an OEM an additional recurring revenue stream.

Enticing Features-as-a-Service consumption

One of the great things about Features-as-a-Service is that there are a variety of ways they can be marketed and sold. An OEM could decide to offer a product with different bundles of features. The user of the equipment would then pay a monthly fee to have those features available.

Software-enabled features could also be offered after the initial sale or leasing of the equipment. Marketing could develop campaigns and pitch higher-end features to the customer base. Additionally, because there is an enormous amount of data about the use of connected equipment, a company could examine feature usage patterns for equipment already in the field. Analysis might find that certain types of companies or consumers are more likely to want this or that feature. Or the analysis might find that particular packaged combinations of features are in demand. For instance, research hospitals using MRIs might like a higher-resolution scanning feature and an AI-based image analysis solution. If such a pattern is detected, the OEM could pitch reduced rate combo packages.

Tiered plans could be offered. Software is routinely sold in this manner based on licenses, users, or usage. So, too can features be offered as a service. Need X number of high-resolution scans in a month, pay this amount. Need twice that number, pay a reduced rate. Need 100 times that amount, pay even less per scan. The sales models are limitless.

What if equipment users are hesitant about adding features? An OEM might try to entice users with a variety of techniques. One option would be a Freemium model, where basic features are made available at no additional cost, but higher-end features must be unlocked. An example might be offering heated front seats in an auto as part of the basic package, with heated steering wheels and back seats extra.

Another way to persuade customers to sign up for features on a monthly subscription plan would be to offer the feature for a limited time before the customer had to start paying for it. That is a type of “try it before you buy it” approach similar to what media and software companies do with their paywalls. They might let you see five articles a month for free. Or an image editing program might let you make changes to a half dozen images a month. After that, you have to subscribe. OEMs could do the same with features offered on their connected equipment.

A final thought

Connected equipment offers new opportunities to deliver enhanced features in innovative ways. Rather than being offered for a one-time fee when the equipment is installed or is initially used, an OEM can generate monthly revenue by offering Features-as-a-Service. In today’s economy, where margins are incredibly small, delivering subscription-based features can deliver predictable and recurring monthly revenues.